International Trade and Economic Integration into the Global Market in China

This coursework is an attempt to understand the theories associated with Global economic integration and to analyse the significance and impact of Global economic integration (GEI) when conducting International Trade in China. In this course work, I have presented some theories of GEI then I have addressed the following research question: what are the major determinants of global economic integration and what effect do they have on international trade in China? Also, emphasis has been given on the fact that international trade has experienced rapid expansion in China together with its dramatic economic growth. Hence, I will try to look into the rationale of the role of international trade in China’s economic growth. I tried to put a review of conceptions and evolution of China’s global trade regime and the policy in favor of trade sectors that are taken by Chinese Government. Moreover, I attempted to extensively analyze the performance of China’s international trade. A few relevant recommendations have been given after the analysis. In conclusion, the study demonstrates that increasing participation in the global economic integration helps China reap the static and dynamic benefits, stimulating rapid national economic growth.

Introduction

This coursework is designed to understand and critically analyze concepts and principles associated with Global economic integration and its significance and impact on China's international trade. To accomplish this objective I will introduce relevant theories of global economic integration and style that with suitable examples. China has learned to seize the profit of economic globalisation during the past forty years, and has become the world’s second-largest economy. The core plan of China’s growing international integration has been the enthusiasm to design fitting and efficient national development policies; invariably been not the opening up to world trade. However, it supported on progressive and selective integration with the world economy (Amighini & Magri, 2018).

Rationale of the study

For this course work I have selected China as my country of choice. Due to its escalating significance, not only academics and business leaders but also by press professionals has been analysing the emergence of Chinese internationalization(Wang, 2010). Since the initiation of economic reforms and the adoption of the open door policy, China’s economy and international trade have experienced dramatic growth. Therefore, research on how global economic integration (GEI) contributed to China’s economic growth can serve as a distinguishing case study that demonstrates how a recent-evolving economy catches up with its precursor by increasing the participation on the global stage.

Methodology

The study is basically based on secondary data collected from different reliable sources of published journals, reports and websites. On the basis of secondary data existing situation has been identified. Throughout the analysis process prevailing conditions have been scrutinized on the basis of which a set of recommendations have been made.

Organization of report

This research starts with literature review from the perspective of GEI's significance and effect on economic growth of China. In part 2, determinant of GEI and its impact on Chinese trade has been briefly discussed. In part 3, the theoretical model like Viner's Traditional Customs Unions Theory and New Economic Integration Theories from the perspective of China's international trade are analyzed respectively. Finally based on these analyses, the paper will suggest some useful recommendation for the Chinese government to develop more fully and effectively in the rapidly developing global economy and will make the concluding observations.

Literature Review

Global economic integration plays a substantial role in the economic development of China. China’s growing role in global trade with regional levels integration has been observed by the proponents; who stated, ““In but thirty years, China has developed to at least one of the world’s largest exporters from having a insignificant half in world trade. China additionally emerged as a considerable trade country of raw materials, intermediate inputs, and different goods” (R. C. Feenstra & Wei, 2009). In this circumstance of economic globalization, global economic integration has become the mainstream topic of current economic development, especially in China. Generally, global economic integration denotes the process serving for several economic entities with diverse economic behaviours and that still appears under the background of global economic dynamics (Atik, 2014). There has been a regression in China’s export-led economic growth performance in recent time. Since 2007-2008 global economic crisis, the Chinese economy is facing a slow pace of economic development.

This slow trend is being called as a ‘new’ normal growth by the Chinese economists. The Chinese government has already introduced an interconnected chain of supply-side structural reforms to address the problem of slow economic growth. Moreover, in the newly formulated the “13th Five-Year Plan 2016-2020” (CCCPC, 2016), the government has promised to provide support to export-intensive industries. New and large-scale project, like the “One Belt One Road” Initiative, also are being implemented by the Chinese government to facilitate the flows of trade and infrastructural development. However, there is definitional debate on the notion of international economic integration (Schneider, 2017). After China’s accession to the WTO in 2001, the country has gone through a substantial process of trade liberalization and expansion of international trade (P. Lai, Du, Wang, & Chen, 2016).

In that context, this paper aims to examine the determinants of China’s global economic integration in the light of different research paper on the subject.

Global Economic Integration

The Global economic integration can be defined as a process that starts with the openness of economies and effects current relations between these economies. Haggard described economic integration as 'A process of policy coordination and adjustment aimed at fostering closer economic interdependence and managing the consequential externalities.' (Haggard, 1995).

Determinant of GEI

There are several factors that have accelerated global economic integration in Asian region especially China; it is the result of four factors mentioned below:

• Growth Of World Trade: In recent decades, the world trade has grown more rapidly than world output. As a result, the proportion of the GDP of most countries that has risen enormously for which countries have become more open and economically interdependent.
• Growth of global finance: Now a days, countries are investing in growing proportion of their savings in securities (shares and bonds) issued in other countries. Internationalization of banks, overseas lending and subsidiaries in other countries has become common which is boosting the growth of new international markets for different kinds of financial asset.
• Rise of MNC: Multinational Corporations are setting up new subsidiaries in overseas countries and/or acquiring assets in foreign companies and the globalising production and supply chain of most goods is spreading over many countries.
• International migration: Global migration of people has been another feature of global integration. Revolutionary changes in methods of transport have made it cheaper and easier for people to move and has made the world seem smaller.

Emerging Trends of GEI

One of the well-known economic strategy of GEI is Regional cooperation and integration. There are strategy four pillars that has anchored this strategy:

• Regional and Sub Regional Economic Cooperation Programs on Cross-border Infrastructure: Cross-border trade has been facilitated by physical connectivity through regional and sub regional infrastructure.
• Trade and Investment Cooperation and Integration: Through improvement of the transparency, efficiency barriers of trade and investment has been eliminated.
• Monetary and Financial Cooperation and Integration: Through establishment of regional financial mechanisms economic and financial stability has been ensured.
• Cooperation in Regional Public Goods: Through coordinated actions to supply Regional Public Goods, such as ecological balance, clean air, management of natural disasters, control of communicable diseases are being promoted.

Theories of GEI

There are different theories of Global economic integration has been established by researchers that helps us to better understand the impact of GEI on a country. Here we will look into Viner's Traditional Customs Unions Theory and New economic integration theory from the perspective of China's international trade.

• Viner's Traditional Customs Unions Theory: This study has first identified the concrete criteria that distinguish between the possible advantages and disadvantages of economic integration. Viner's 'static analysis' of economic integration has distinguished possible effects of economic integration into trade creation and trade diversion effects (Viner, 1950). For example, Trade creation in China happens when a trade agreement is signed with another country (e.g: USA), and trade transfers from USA (high-cost supplier country) to China (low-cost supplier member country). And trade diversion in China may occur when imports are shifted from a third country (low-cost supplier)) to USA (high-cost supplier country) inside the union.
• New Economic Integration Theories: In the New theory conclusion has been made that static analysis of EI theory do not provides inclusive answer, and that why the dynamic analysis of EI that has to be utilized that commences the debate of Old Regionalism vs. New Regionalism (Sheer, 1981).

The 'old regionalism' has been referred as the static effects and developments of the theory of economic integration developed by Viner whereas 'new regionalism' is characterized by dynamic effects such as economies of scale, technology transfer, investment flows, increased competition, and improved productivity (Sheer, 1981).

Impact of GEI in the Evolution of China’s International Trade

China had introduced its open-door approach in 1979 in order to initiate its own industrialization. From then on, China is now the world’s second largest economy and largest economy in merchandise trade and foreign exchange reserves with its nearly double-digit growth rates for more than three decades. In 40 years of reform and development, China has grown its share of the world market from less than 1 percent to 11 percent (Figure 1).

China's Global Economic Integration

The rapid pace and success in the industrialization of export-led investments and manufacturing has resulted in becoming the major driver of Chinese industrialization. The below figure reveals that there has been increase in China’s domestic investment and outward foreign direct investments which means China is becoming integrated with the rest of the world. Figure 2 clearly shows that overall trend of China’s trade activities is rising.

International Trade Policy of China

China’s economic growth has been effected by some of the unprecedented development in the Chinese trade sectors and trade policy. China has successfully converted itself to an outward-oriented country from an inward-oriented country which was protected by various trade policies by targeting the global market. According to Heshmati et al. 'Before 1978, China’s has resulted into subordinate status of the national economy due to their planned economic strategy and inward-oriented policy ' (Heshmati & Sun, 2010). Since 1978, China has pursued unparalleled trade liberalization and gained tremendous benefits from its integration into global trade system. China launched a massive tariff cut by reducing the average tariff rate to 15% in 2001 and 9.8% in 2008 and a broad array of non-tariff barriers such as licenses and quotas were reduced. The export quota was reduced from 227 (in 1992) to 66 (in 2001) and the import quota from 53 (in 1992) to 33 (in 2001) respectively (Heshmati & Sun, 2010).

China’s access into WTO

On December 2001 China formally became member of the World Trade Organization (WTO) after 15 years of endeavour. China's WTO accession has largely contributed to reducing the technological gap between them and developed countries by providing access to foreign equipments and leading technology. After joining the WTO, China used to enjoy a comparative advantage in labor-intensive manufactured exports. Yet, if China continued to mainly produce labor-intensive consumer goods the terms-of-trade of its exports would decline, and China would be a net loser even if it exports greater volumes. That why since 2010, China’s exports have consisted both labor-intensive commodities and capital- and technology-intensive ones. From 2016, the share of medium- and high-technology manufacturing products in China’s export basket has exceeded 70% (Chen, Hou, Xiao, 2018). We can see the share of manufactured trade is rising rapidly in the high technology area in Figure 3.

China's “One Belt, One Road” Initiative

The “One Belt, One Road” initiative was adopted as the main policy of Xi Jinping in October 2012 and was officially announced in September 2013 (Ferdinand, 2016). China’s rapid annual GDP growth has slowed in recent years, from around 12% to 6.2–7.0% thanks to a scarcity of innovation, the new in-charge administration had to initiate the “One Belt, One Road” economic zone for infrastructure to support trade and greater integration with the rest of the world (OECD and ITC Statistic, 2018). Questions have been raised about the impacts of the “One Belt, One Road” initiative on the manufacturing complexity of China, as China’s economy was growing rapidly in the years prior to the greater openness entailed by this new policy. As a matter of fact, since China began promoting its “One Belt, One Road” initiative aimed at deeper integration with the rest of the world in September 2013, China’s trading volume has been about 2012 billion US dollars, its GDP per capita has been 10,893.64 US dollars (OECD and ITC Statistic, 2018), and Hausmann et al. have calculated its manufacturing complexity by their formula, has been around 5240 units (Hausmann, Rodrik, 2002).

Recommendations for Successful Global Integration of China

The economic rise of China represents one of the most significant breakthroughs in economic and political affairs of today’s world. This impact of China’s rise is an opportunity and a challenge to the global economic system that inspires the following major recommendations that should considered for successful Global Economic Integration of China's International Trade:

• China should increase interaction between market and government: Market forces and government forces in different regions plays different roles in economic integration where market is the bottom-pulling power and government is the top-down driving force. Therefore, the government and the market should interact and complement each other so as to achieve the goal of global economic integration development in China.
• China should design integrated operating mechanism: In order to accomplish the goal of true economic integration, China should design and innovate on a global economic integration system and operational mechanism that formulates some necessary policies and measures, to provide institutional norms and organizational guarantee for GEI.
• China need to develop integrated planning: For successful GEI overall planning for development is essential. The harmony of global planning requires to break the regional division, which needs the overall planning and overall arrangement of the function of economic zone beyond the boundaries of administrative divisions.
• China should establish integrated institutions: China can coordinate different administrative bodies within the region by establishing different levels of management organizations and public platforms coordinating bodies that will help with minimizing barriers of inter-regional constraints and reducing transaction costs, reducing the disorderly competition, promoting regional economic integration etc.
• China should create integrated market: China should try to remove obstacles factors of production flows through the integration of internal market by sharing the common market, to realize the organic integration of the global economy.
• China should develop integrated infrastructure: China should develop a integrated infrastructure by constructing strong global information networks that would provide a combined platform covering the entire region and will help improving information delivery mechanism, establishing the appropriate information service system, to achieve information sharing and information flow unimpeded.

Conclusion

It is needless to say, trade is an important prerequisite for economic development of any country. Without continuous economic growth, no country can be economically independent. For international trade improvement global economic integration is a key. This paper has analyzes aggregated impacts of global economic integration on China's international trade. In this study, an attempt is made to explore the major determinants influencing the china’s economic growth. China has become a major exporter by utilizing the integration of domestic manufacturing within the global production network. The results of the present study lead us to conclude that the recent rise in the export competitiveness of Chinese manufacturing industries has been brought about by innovation intensity stemming from active integration with the rest of the world. And then new regions through the integration need a wider, higher level coordination, ultimately towards the direction of the development of economic globalization.